Public Bill Committee

[Sir Nicholas Winterton in the Chair]

Nicholas Winterton: I welcome all members of the Committee to this first sitting. I have a number of preliminary announcements to make. First, if Members wish to remove their jackets during Committee meetings, I am happy that they should do so. However, it is up to my co-Chairman, Mrs. Janet Anderson, to decide whether that is also part of her instruction. Members should also note that mobile telephones, pagers and other electronic devices should be turned off or switched to silent mode. I become very blind if Members whose phones go off then rise to catch my eye.
I remind the Committee that there is a money resolution and a Ways and Means resolution in connection with this Bill, and copies are available here in the Committee Room. I should also like to remind Members that adequate notice should be given of amendments. As a general rule, I and my fellow Chairman do not intend to call starred amendments.
The process of taking oral evidence in Public Bill Committees is still relatively novel, so I will briefly explain what is proposed so that we can all be clear as to precisely what should go on. The Committee will first be asked to consider the programme motion on the amendment paper, on which debate is limited to half an hour. I will then proceed to a motion to report written evidence, and then a motion to permit the Committee to deliberate in private in advance of the oral evidence sessions, which I hope we can take formally. I look to both sides of the Committee for their agreement. Assuming that the second of these motions is agreed to, the Committee will move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back in and our oral evidence session will commence. If the Committee agrees to the programme motion—I hope very much that it will—the Committee will hear oral evidence today and on Thursday, moving on to the more familiar proceeding of clause-by-clause scrutiny next week.
We come now to the programme motion. I understand that an amendment is to be proposed. It would be convenient for the Committee if the Minister moved the motion formally and the Government Whip then moved his amendment.

Mike O'Brien: I beg to move,
That—
(1) the Committee shall (in addition to its first meeting at 10.30 a.m. on Tuesday 15th January) meet—
(a) at 4.00 p.m. on Tuesday 15th January;
(b) at 9.30 a.m. and 1.00 p.m. on Thursday 17th January;
(c) at 10.30 a.m. and 4.00 p.m. on Tuesday 22nd January;
(d) at 9.30 a.m. and 1.00 p.m. on Thursday 24th January;
(e) at 10.30 a.m. and 4.00 p.m. on Tuesday 29th January;
(f) at 9.30 a.m. and 1.00 p.m. on Thursday 31st January;
(g) at 10.30 a.m. and 4.00 p.m. on Tuesday 5th February;
(h) at 9.30 a.m. and 1.00 p.m. on Thursday 7th February;
(i) at 10.30 a.m. and 4.00 p.m. on Tuesday 19th February;
(j) at 9.30 a.m. and 1.00 p.m. on Thursday 21st February;
(k) at 10.30 a.m. and 4.00 p.m. on Tuesday 26th February.
(2) the Committee shall hear oral evidence in accordance with the following Table:
TABLE

Date

Time

Witness
Tuesday 15th January
Until no later than 12 noon
Personal Accounts Delivery Authority
Tuesday 15th January
Until no later than 5.10 p.m.
Association of British Insurers; National Association of Pension Funds; Investment Management Association
Tuesday 15th January
Until no later than 6.40 p.m.
Trades Union Congress; Equality and Human Rights Commission; Which?; Age Concern; Help the Aged
Thursday 17th January
Until no later than 9.45 a.m.
Pensions Policy Institute
Thursday 17th January
Until no later than 10.25 a.m.
British Chambers of Commerce; Federation of Small Businesses
Thursday 17th January
Until no later than 2.10 p.m.
Engineering Employers Federation; Confederation of
British Industry; Association of Consulting Actuaries
Thursday 17th January
Until no later than 3.15 p.m.
Pensions Commission
Thursday 17th January
Until no later than 4.45 p.m.
Department of Work and Pensions
(3) the proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 57; Schedule 1; Clauses 58 to 79; Schedule 2; Clause 80; Schedule 3; Clauses 81 to 90; Schedule 4; Clauses 91 to 94; Schedule 5; Clauses 95 and 96, Schedule 6; Clauses 97 and 98; Schedule 7; Clauses 99 to 108; Schedule 8; Clauses 109 to 111; new Clauses; new Schedules; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 7.00 p.m. on Tuesday 26th February.
It is a delight to be here and to be under your chairmanship, Sir Nicholas. I am sure that we will make great progress with the Bill under your fair and firm chairmanship. We look forward to that and to getting the Bill through in good condition.
The programme motion gives us four sessions of oral evidence and enables those who have made submissions to answer questions, to set out their case and to raise their concerns. From the submissions that we have had about the Bill, we know that there is broad support. I am sure that the evidence sessions will enable us to hear that support and to hear people’s concerns.
Sir Nicholas, you referred to the timing of the start on Thursday 17 February. At the moment, the programme motion states 9.30 am, but we want to move to 9.00 am, because otherwise we will be sitting for about 15 minutes, which would not make much sense and would not give the witnesses much of an opportunity, either. That is the only area of the programme motion that I would wish to amend.
After the evidence sessions, we will have the opportunity to have a proper discussion about the detail of the Bill. The schedule of witnesses needs to be agreed, so I hope that my colleagues will be able to do that—there have been some informal discussions. The 18 discussion sessions will enable us to have clause-by-clause scrutiny, including a short break for half-term in February. I am sure that you and Janet Anderson, Sir Nicholas, will be able to lead us through the difficult parts. The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt), is going to assist me in handling the Government side of some of the amendments, particularly in part 3, which will enable us to deal with all those issues and in a full and proper manner.
There will be a new process with regard to Government amendments, which it is right for me to mention at this stage; a short letter to you and Janet Anderson, Sir Nicholas, informs you of that. We will be tabling a number of amendments, some in response to discussions but others to clarify parts of the Bill; we have already indicated some areas that we still have to amend. What we will be doing is setting out an explanatory statement with the amendment. That has not, broadly, been done in the past—it has been left to the Minister—but we will be providing an explanatory statement of the amendment and of its effect. With other amendments, we will ask if other members of the Committee wish to provide an explanatory statement to their amendments, so that the Committee can see a paragraph in writing. If the Committee members do not want to do that, my officials will contact them and see if they can be of help in drafting the clarification statement. That will enable us to have a greater understanding of the purposes of amendments and to help prepare any contributions colleagues might wish to make. During the course of the Bill, we will also be letting members of the Committee have fact sheets and some Keeling schedules setting out the effects of various amendments and how they will alter the text of the Bill, where that is appropriate.
I am sure that we will have a full and good debate according to the programme motion and under your chairmanship, Sir Nicholas. I look forward to that and to working with all my colleagues on the Committee.

Nicholas Winterton: I allowed the Minister to go into some explanation. I was hoping that he would move the motion formally and that we would have the debate on the amendment, but it is appropriate for the Minister to have said what he did to the Committee.

Amendment proposed: (a), in (1)(b), leave out ‘9.30’ and insert ‘9.00’.—[Mr. David.]

Nigel Waterson: Thank you, Sir Nicholas, you can tell how eager I am to get stuck into yet another Pensions Bill.
May I speak briefly on some of the issues raised both on the main motion and the amendment? We will not be dividing; we support both the motion as it stands and the amendment. Had it not been for the amendment, the Pensions Policy Institute would have had to distil all its wisdom and expertise into a 15-minute session—it would have been famous for 15 minutes, as the phrase goes—which did not strike us as very satisfactory.
Pensions Bills are becoming an annual event under this Government and so far as it goes, we welcome the latest one. I welcome all the hon. Members to the Committee—volunteers and pressed men both—and particularly my colleagues who have volunteered to help in our deliberations. Evidence sessions on any view are going to move at a brisk pace, if not in something of a blur. A whole week of oral evidence sounds generous, but one can gauge from the number of organisations that have been clamouring for the opportunity to give evidence just how much interest the Bill excites.
I have said what I needed to say on the amendment—it seems perfectly sensible. I was pleased to hear what the Minister said, both now and in writing, about amendments. We are, of course, particularly interested to see the Government’s amendments on the financial assistance scheme and on giving full compensation to people who have lost their pensions, or much of their pensions. No doubt there will be the usual flurry of excitement as the Bill continues, about whether draft regulations can catch up with the actual clause under which they are to be introduced. I know Ministers always start off with the best of intentions but those matters are not always completely in their control. Obviously it would be helpful, given that many of the important issues in the Bill are left to regulation, if those regulations were in front of us during the relevant debates. I am sure that the Ministers will do their level best—likewise with their amendments.
I apologise that, despite the opportunity—I do not think that there is the obligation—under the rules, most of my amendments so far do not have an explanatory memorandum attached. I drafted them over Christmas, so it was a choice between Christmas and explanatory memorandums and Christmas won. I have checked with the clerks; one has to table the explanatory notes at the same time as the amendments so apparently there is no opportunity to put them in later, which we would be perfectly happy to do. Members may also have noticed that the more recent amendments—I hope future ones—all have attached some attempt to explain what they are about. We of course do not have the resources that are at the disposal of Ministers. We look forward to seeing their amendments and their explanatory notes.
It is a great pleasure, Sir Nicholas, to serve under your Chairmanship and that of Mrs. Anderson. I am sure that we will have a thoroughly enjoyable few weeks—particularly the half-term. Many of, but not all, the issues in the Bill are based on the Turner settlement and an element of consensus between the major parties, but there are some big issues, and some issues on which we and the Government still disagree. But I hope that we can, as they say, disagree without being disagreeable.

John Greenway: It is a rare pleasure to serve on a Public Bill Committee and I want to apologise to you in advance, as I will be absent on one or two occasions in the next five or six weeks because of my Council of Europe Parliamentary Assembly responsibilities. However, I intend to play a full and thorough part in the Bill.
On a point of information, the programme motion clearly sets out when we will begin our sittings but can the Minister clarify where he expects the various sittings to end? I am not clear about what happens on Thursday if we start at 9.30 am. I am quite happy to sit in committee when question times take place on the floor of the House as I think this is more important. Other colleagues may have a different point of view. Some clarification on when we think we will end would help because, as my hon. Friend the Member for Eastbourne (Mr. Waterson) says, we do have a lot of work on this Bill and it will help us to programme how far we need to get if we know exactly how much time we have for deliberation. In the meantime, we look forward to serving under your excellent chairmanship.

Nicholas Winterton: I liked the hon. Gentleman’s last comment. He has given notice that he may be absent for one or two of the sittings because of other parliamentary engagements. It is up to each Member to decide their priorities and if the hon. Gentleman needs to be in Europe for important meetings representing this House the Committee will understand.
May I say to the hon. Member for Eastbourne, following the experiment in the last session with the Legal Services Bill, it was agreed that a further trial of explanatory statements on amendments should be undertaken? The Pensions Bill is one of three chosen for the second phase of the experiment. The hon. Gentleman spoke about the need to table the explanatory note at the same time as the amendment, but that could be possible that that could be changed. The amendment could be tabled and the explanatory note could follow. I do emphasise, therefore, that this is the second phase of an experiment. The Clerk and I have taken note of what the hon. Gentleman has said.

Amendment agreed to.

Main Question, as amended, put and agreed to.

Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 10.30 a.m. on Tuesday 15th January) meet—
(a) at 4.00 p.m. on Tuesday 15th January;
(b) at 9.00 a.m. and 1.00 p.m. on Thursday 17th January;
(c) at 10.30 a.m. and 4.00 p.m. on Tuesday 22nd January;
(d) at 9.30 a.m. and 1.00 p.m. on Thursday 24th January;
(e) at 10.30 a.m. and 4.00 p.m. on Tuesday 29th January;
(f) at 9.30 a.m. and 1.00 p.m. on Thursday 31st January;
(g) at 10.30 a.m. and 4.00 p.m. on Tuesday 5th February;
(h) at 9.30 a.m. and 1.00 p.m. on Thursday 7th February;
(i) at 10.30 a.m. and 4.00 p.m. on Tuesday 19th February;
(j) at 9.30 a.m. and 1.00 p.m. on Thursday 21st February;
(k) at 10.30 a.m. and 4.00 p.m. on Tuesday 26th February.
(2) the Committee shall hear oral evidence in accordance with the following Table:
TABLE

Date

Time

Witness
Tuesday 15th January
Until no later than 12 noon
Personal Accounts Delivery Authority
Tuesday 15th January
Until no later than 5.10 p.m.
Association of British Insurers; National Association of Pension Funds; Investment Management Association
Tuesday 15th January
Until no later than 6.40 p.m.
Trades Union Congress; Equality and Human Rights Commission; Which?; Age Concern; Help the Aged
Thursday 17th January
Until no later than 9.45 a.m.
Pensions Policy Institute
Thursday 17th January
Until no later than 10.25 a.m.
British Chambers of Commerce; Federation of Small Businesses
Thursday 17th January
Until no later than 2.10 p.m.
Engineering Employers Federation; Confederation of
British Industry; Association of Consulting Actuaries
Thursday 17th January
Until no later than 3.15 p.m.
Pensions Commission
Thursday 17th January
Until no later than 4.45 p.m.
Department of Work and Pensions
(3) the proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 57; Schedule 1; Clauses 58 to 79; Schedule 2; Clause 80; Schedule 3; Clauses 81 to 90; Schedule 4; Clauses 91 to 94; Schedule 5; Clauses 95 and 96, Schedule 6; Clauses 97 and 98; Schedule 7; Clauses 99 to 108; Schedule 8; Clauses 109 to 111; new Clauses; new Schedules; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 7.00 p.m. on Tuesday 26th February.

Ordered,
That, subject to the discretion of the Chairman, any written evidence received by the Committee shall be reported to the House for publication.—[Mr. Mike O’Brien.]

Ordered,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—[Mr. Mike O’Brien.]

The Committee deliberated in private.

On resuming—

Nicholas Winterton: We will now hear oral evidence from representatives of the Personal Accounts Delivery Authority. I welcome the witnesses here today: Mr. Paul Myners, chairman of the Personal Accounts Delivery Authority; and Mr. Tim Jones, chief executive of that Authority. Perhaps they would like to introduce themselves to the Committee and those who are here to listen to what is going on so that they will know which is which and who is who.

Paul Myners: Sir Nicholas, we can not only see you with great clarity, but hear you with great clarity. We are delighted to be appearing before your Committee. Thank you very much for inviting us. I am Paul Myners, the non-executive chairman of the Personal Accounts Delivery Authority. On my left is Tim Jones, who is the chief executive.

Nicholas Winterton: Thank you. You have taken authority and introduced your chief executive. So often the boot is on the other foot, where the chief executive carries the authority, but quite clearly you carry considerable authority as chairman. I liked the way you did it.

Q 1

Nigel Waterson: Good morning and welcome. Will this new scheme be up and running in 2012, or is there a plan B?

Tim Jones: The policy intention is that the personal accounts scheme will launch in 2012, and it is my job, and the delivery authority’s job, to meet that intention. We have no evidence at this stage that that is unachievable.

Q 2

Nigel Waterson: You will have noticed that we have tabled quite a few amendments that deal with lump sum contributions, transfers and the annual contribution cap. Would you like to develop in a bit more detail from your perspective—particularly the IT perspective—the mechanics of setting up this massive undertaking and the trade-off of complexity, cost and possible delay?

Tim Jones:   This is a very large and complex undertaking. Compared with a large occupational defined contribution pension scheme today, where there might be one employer and 10,000 members, personal accounts prospectively will be dealing with up to 1 million employers and around 5.5 million active members in the early stages. As the scheme matures, that number will grow relatively slowly, but it will be complemented by large numbers of dormant members—perhaps twice as many—as the thing settles down.
You are quite right to say that this is a significant challenge, and we are working hard in our advisory phase at the moment to advise the Department on a number of elements of that challenge. One of the most important things for us is that the scheme remains as simple as it can be. I have already described the scheme as “beguilingly simple”, in the sense that we do not want to have bells and whistles on this scheme. We wish it to be a simple scheme. But, already, unique features, such as the contribution cap, no waiting period, and our EU legal duty to allow people from across the EU to sign up, mean that there are considerable administrative complexities. So our clear advice is to keep the scheme as simple as is practical.

Q 3

Mike O'Brien: The Bill gives you a wide range of responsibilities and obligations. Can you set out the priorities that you see in terms of implementing the provisions of this Bill?

Paul Myners:   PADA is advising the Department for Work and Pensions on the deliverability of its policy, in line with the remit set out for us in the 2007 Bill. I can only reiterate Tim Jones’s answer that it is essential to keep the personal accounts scheme simple, to keep costs down, to keep communications simple and understandable to an audience who will be new to pensions, and to minimise delivery risks. Keeping it simple is critical to the successful delivery of personal accounts. Every further bell or whistle that is added to the scheme will have to be paid out of people’s retirement income. That cost will have to be reclaimed from members’ accumulated savings. As the Bill passes through Parliament, I would urge Parliament to keep this message in mind.
A further focus for PADA’s work at the moment is preparing detailed plans for implementation. This will be completed by the end of March. We are already assembling the skills and competencies necessary, particularly through the appointment of Tim Jones as chief executive. I would pay tribute to the quality of the work that has already been done by DWP staff in getting us as far as we are. From my perspective as a businessman who has primarily worked in the private sector, the work that has been done here by members of the DWP has been of the highest quality.
We have also had the first meeting of our consumer representative committee, chaired by one of our non-executive directors. We will shortly be issuing a consultation document on charges, and we have begun an extensive programme of communication with stakeholders. We are a very open and transparent organisation. We will be available to anybody who wants to make representations to us as a supplier, a user, or somebody who has a nexus with us. We will also be seeking to appoint additional non-executive directors—we have recently agreed terms with a firm of executive research consultants to appoint additional non-executives to our board—and we will, in particular, be looking for an employer representative on the board to balance the excellent representation we already have on the employee side through Ms Jeannie Drake.

Q 4

Andrew Selous: Pursuing the administrative theme a little further, the Department has not had a happy history in terms of its computer provision over quite a number of years. That fact has been looked into by the Public Accounts Committee, among other bodies. Can you tell us anything about the computers for PADA? They are going to have to be fairly substantial and will need to work well. I do not know whether you are constrained by commercial confidentiality considerations, but I would like to know whether you or the Department will be running the computer systems, particularly in terms of the long-term management of the computer schemes. The PAC has picked the Department up on that issue in the past and has accused it of not being capable of being an intelligent customer.

Tim Jones:   First, may I draw a brief distinction between PADA and the trust-based scheme, the personal accounts board, which we occasionally call PAB? PADA—the thing that Paul is chairman of and I am chief executive of—is a relatively unusual animal. It is going to be a non-departmental public body, stewarded by the Department for Work and Pensions, but its role is to be a transient NDPB to assist in setting up the trust-based scheme of personal accounts and to assist the pensions regulator with compliance activities in regard to the new employer duties. PADA itself will therefore have relatively limited computer support—it will basically be limited to office support.
May I refer your question to the trust-based scheme—the operational entity which will have the job of running the 5 million-member defined contribution scheme? Our intent in this area is to procure business services through formal public sector procurement processes. It is not my intent to create an IT system myself as the foundation as a set of business processes, and nor do I think that it is the intent that the DWP will bid to be the supplier of that. We are going through a process of market engagement, and we have engaged with a wide variety of potential interested parties from the private sector. Our intent is to procure a series of business services from them.
If I may add a little colour to that answer, where we have been looking at fund management and fund administration we have, I think, concluded thus far that our requirements are not that different from the requirements of other occupational pension schemes. Therefore the inherent risk in the procurement of those business services is relatively low. On the scheme administration side—where member records are held and all that—the novelties in personal accounts of scale and nature mean that that really is quite different and new, and I therefore expect to focus a lot of my energy on managing out the inherent risks in the procurement of that area of business services.

Q 5

Nick Ainger: I am sure that you have read the report of the Bill’s Second Reading debate in Hansard. My hon. Friend the Member for Colne Valley (Kali Mountford) raised an issue relating to people who are below the £5,000 threshold and perhaps employed in multiple jobs. Would it be PADA’s responsibility to encourage the people who fall into that category—the figures seem to indicate that there are about 40,000 of them—to opt into the personal accounts? Is the system flexible enough to take account of the likelihood that they are people who are going to be moving in and out of different jobs—all low paid and so on, with probably little continuity? Bearing in mind your comments that we need to keep it very simple, is there potentially a problem because of the complex nature of the people who are just below that £5,000 threshold?

Paul Myners:   There are issues on which we continue to work around the effective management of both the lower limit of earnings and the upper limit of earnings and contributions, and more work needs to be done. We are clearly concerned about a situation in which a worker may have a number of jobs, some of which, or all of which, fall below £5,000 of earnings from a single employer, but in sum exceed £5,000. Finding a method by which we are able to bring those people into personal accounts is clearly important and we are working on that at the moment. May I invite Mr. Jones to add something?

Tim Jones:   We have recognised that as an issue and we are exploring it. I think that it is too early to say where we will land, if we will come forward with a specific proposal to deal with that. More generally, it is likely that we will identify a number of features that are desirable, where we conclude, in a sense reluctantly, that in order to mitigate and manage the risk to first launch, we do not make provision for all of them. That is just the straightforward risk management of getting something big and complex to live launch.
We welcome the notion of a review of the scheme in 2017, which arose from the Work and Pensions Committee, and it may be that some of the topics get put forward for review at that point. On this specific, we recognise the issue and are working on it, but I will be counselling my board—I counsel you now—that in order to manage risk, there will be a number of occasions when I will say, “Yes, it’s an issue, but let’s get the core scheme launched first and see, when that has settled down successfully, whether we can deal with some of these important but further points”.

Q 6

Nick Ainger: I am sure that you appreciate the real issue. Here we have the lowest paid in our society, and there is the issue of complexity. I understand the reasons why we have set the thresholds where they are, and that they can be moved up or down. I understand that thresholds have to be set, but surely there are ways in which we can target those people and encourage them at least to come into the personal accounts scheme. This is a rather rambling question but do you envisage promoting personal accounts directed specifically at those people who are below the £5,000 threshold?

Paul Myners:   It was not a rambling question at all. I think there is a real need here—and you have correctly put your finger on the importance of communication and information. We will be exemplars in communication, not only to our clearly understood and defined target market, but also to those of the sort you described who should be in that target market—people who are earning individually less than £5,000 but in aggregate more than £5,000. We will be working hard to develop highly effective communication. Indeed, our consumer panel and our employer panel will be specifically charged with giving us advice on issues relating to communication and the provision of information.
Of course, it is not just personal accounts that would be relevant to these employees. We want to make sure that we are able to bring workplace pension provision to those from the community that you describe—of which personal accounts are one option, but the insurance and savings industry will have other options. Indeed, one of our statutory obligations is not to replace commercial provision, but rather to work to complement it.

Q 7

Stewart Jackson: Following the question from Andrew Selous about administrative costs, may I ask you, Mr. Jones, to consider clause 10 on employers’ duties? There has been quite a significant increase in the estimate of administrative costs between the publication in December of the regulatory impact assessment and the current assessment. Why do you think there is such an increase and what assessment has been made in terms of the likely administrative costs that will fall on small or micro-businesses?

Tim Jones:   You are correct that there has been an uplift in the assessment of those costs. The reason for that was not any change to the underlying activities that are being asked of businesses: it was just a better assessment of the way in which that burden will fall between the very largest and the very smallest enterprises. There are some elements of a fixed nature, which obviously are a relatively bigger burden for the very smallest enterprises because the employer will have to introduce the concept of this scheme to the workforce. The reason that the figure rose was a change to the methodology in the model of the way in which the costs of the same activities were estimated to land in different parts of the business community.
We are content with, and have worked closely with colleagues in the Department on, that modelling, so I would say that we think it is as good as it can be at the moment. I would also say that I expect it to change again. This issue is so large and complex that as the mists clear and as we get toward a clearer understanding in exact detail of what the processes will be, we will look to refine that model further.

Q 8

Stewart Jackson: What do you say about the second part of the question in respect of the general estimates? Are you expecting the estimates of administrative costs to rise significantly as you remodel the methodology?

Tim Jones:   I hope not. Part of the reason that that might happen and might be out of our control would be if—through the course of the passage of this Bill or the scrutiny of secondary legislation—things change which alter the burden or the procedures. We have among our principles a duty to consider doing this in a way that minimises the burden on employers. We take that principle very seriously, so we are going to be working particularly through the employer representative committee as we set that up to consult through it and other stakeholders directly on ways in which we can keep the employers’ burden as small as we reasonably can.

Q 9

Alan Keen: You have already mentioned that you are not going to operate the computer systems yourselves. Can you say whether the IT work is going to be done two levels down? Are you going to employ consultants to help you decide which computer company is to provide the system? Would you give us some of your early thoughts?

Tim Jones:   We will be procuring business services through a formal, EU, public-sector procurement process—the publication of what are called OJEU notices in the Official Journalof the European Union and then the procedure that follows on from that. It is a little early to be absolutely clear about which of the individual processes available under that umbrella of processes we will be following. We will, as PADA, have a mixture of our own staff and consultant support within PADA—my procurement team, within the executive team—managing that process. The business services that we procure will be from a contracting party. That contracting party or parties, at the end of this process, will have a contract that, I am sure, will be rich and have service level agreements and all the rest of it. That is how we will manage the outcomes and at the quality levels that we wish.
The real issue is the way in which we work the process in a high-quality manner, the way in which we develop our conversations and the quality of the documents that we put out. I can assure you that, having delivered a number of reasonably complex systems of scale in my principally banking past, I take very seriously indeed the process of creating specifications that lead to good outcomes.

Q 10

Alan Keen: Have you had or will you have the chance to look at what happened in the health service? I get the impression, looking at arm’s length, that we—the taxpayer—were let down pretty badly by the providers of the IT systems. It did not look, to me, that the taxpayer was compensated by the companies that failed to produce what they were supposed to produce. Have you had any thoughts on that?

Paul Myners:   Subject to Parliament’s discretion, personal accounts, as envisaged, will involve a series of functions that already equates quite closely with those offered in the private sector. That is to say, we ought to be able to draw upon existing systems and methods, as opposed to designing and building something that is entirely novel and particular to the requirements of personal accounts. We are, of course, aware of the challenges of implementing major systems arrangements, but Mr. Jones and I bring quite a lot of relevant experience from the private sector. Mr. Jones was head of the retail bank NatWest and I was chairman of Marks & Spencer and have been on the board of companies using technology, such as O2, Orange and Lloyds, so I am familiar with major IT projects. I believe that the reviews already carried out of the work done at PADA by the Office of Government Commerce and by the Treasury’s major projects review group have already spoken very positively about the competencies that they have seen within the PADA unit, as far as the management of major systems projects is concerned. However, we do not take these issues lightly—we recognise that there are major challenges here. We are going to have to be absolutely on our toes, because we are talking about very substantial sums of money.

Alan Keen: I am quite comforted. I am a lot older than you are, and I worked on the first mainframes, transferring management information on to the first mainframes in industry way back—more than 35 years ago now. I have wisely, since I have been in Parliament for 11 years, kept at arm’s length any experience I had before in the private sector, but I am comforted by what I heard.

Q 11

Gordon Banks: I would like to touch on the employer’s role in the provision of information and on the burdens on and the safeguards for both employers and employees. Obviously, employers will have the duty to provide information on personal accounts. If that is correct, what form will this information take, and is there a need for registration of receipt of the information by the employee that will prevent possible future claims of negligence and non-compliance when somebody says 25 years down the line, “My employer never told me about this; therefore I didn’t register; therefore I want to make a claim”? That in itself is both burdensome on the employer and the employee, but also has built-in safeguards for both. I have two other brief points, but perhaps you would like to take that one first.

Paul Myners:   I will be brief to give you time to ask your further questions. Importantly, the employer will provide information, not advice, and it is critical to understand that. Secondly, we will, both at PADA and in our work with the employer panel, devise ways of ensuring that the communication burden on the employer, in terms of cost, is kept to an absolute minimum. I would add, in parentheses, that there is very real advantage here to employers who previously had not been able to make workplace pension provision a part of their offering to employees. I believe that many employers will rise to the challenge and opportunity that this provides to embed better relationships between the employer and the employee. So it is not entirely a burden: there is a very significant opportunity here through the communication exercise. The responsibility to ensure that an employer has complied with their legal obligations in terms of the provision of information will lie with the regulator, which in this case will be the pensions regulator.

Tim Jones:   One of the things we are beginning to discover, as we start to get down into the guts and the detail of thinking this through, is the very broad range of skills, aptitudes and understanding in the employer community of workplace pensions. Our target market is, primarily, a very large group of employers that has not chosen to offer workplace pensions, so we are expecting, in practical reality, the level of engagement, of understanding and of knowledge to be extremely variable.
I fully support what Paul has said, that there will be a tranche of employers who will do a great job in communicating this to their workers, and there will, frankly, be other employers who will do a less good job. We intend to provide excellent information from the PAC scheme and, through our work with the pensions regulator, we will see what role it has, although its role is primarily around compliance. This is one of those areas where, of course, we all want the employer to do the best job. In practice, however, to reach the full set of the worker community—including, for example, agency workers, who will be involved in this—we think there is a role for the trust-based scheme to be pointed out as an information source to workers quite early in the process, so that it can then directly provide information.

Q 12

Gordon Banks: So will there be a registration form that employers will have to keep to say, “Yes, I provided you with this level of information at a certain point in time”, so that there can be no future claims of negligence?

Paul Myners:   That would be a matter for the pensions regulator.

Q 13

Gordon Banks: Okay. A couple of points about costs were possibly touched on earlier. What are your projected costs and number of employees? Also, Mr. Jones, you mentioned earlier the millions of dormant members. Has there been any projection—any crystal ball gazing done—as to how long a dormant member may remain a dormant member, and therefore how often a member may flit in and out of buying into the process?

Paul Myners:   May I take the first point, and then Mr. Jones will take the issue of dormant membership? The total cost of personal accounts will be dependent, importantly, on decisions made by this Committee and by Parliament, in terms of how simple we keep the basic product. We are, therefore, to some extent dependent upon you, because that in turn will drive our product delivery specification and cost, which in turn will impact upon the volumes of business that will be written by personal accounts and by the commercial sector. From that we will be able to deduce the organisational structure that is required.
It is too soon, therefore, to answer that question. Until you have specified what you want built, we cannot give you a quotation. I am sure Mr. Jones will give you a more precise answer on the second part of your question.

Tim Jones:   Mr. Jones has forgotten the second part of the question. I would be grateful if you could remind me.

Q 14

Gordon Banks: The second part of the question related to the dormant members and projections on how many people might flit in and out.

Tim Jones:   Thank you—a senior moment. On dormant members, one of the things that is unique about personal accounts is prospectively the ban on transfers in and out. Let us add to that the large number of temporary migrant workers in this country that we have seen over the past few years. I do not have a crystal ball and I do not know whether these circumstances will continue into the future, but if they do, it is entirely plausible that we will have millions of workers from across the European Union who come to the UK, work, qualify, have a national insurance number and a personal account, go back home and have no further involvement with personal accounts until they decumulate. I apologise—until their pot turns into a retirement income, the technical term for which is decumulation.
This is a significant challenge to us. We are required under the law that applies to a defined contribution trust-based scheme to communicate annually with all our members. The default for that is a snail mail or paper communication, although it is possible to ask people to opt for electronic communication. I ask you to think about the practical difficulty of making these communications to millions of people. I am very glad that the ban on transfers out has been brought up as a subject for discussion in the 2017 review because, from an operational perspective, I could make a case for allowing us to be able to transfer out these very small pots. This would reduce the administrative burden that will fall across the cost of the scheme, arising from a large number of dormant accounts.

Paul Myners:   May I make a further brief observation, which may help the Committee to understand the role of personal accounts? We have a universal service provision obligation. We will have to take business from any employer and any employee that is offered to us as a business line. A commercial provider would, for instance, be able to cross-sell other products to certain of the pension savers in a certain type of product arrangement and would be able to transfer out small balances and dormant accounts to another provider or oblige the holder of those dormant accounts to transfer the business away if it was uneconomic to service that business. Personal accounts will not be able to do that. We have a universal service provision obligation that makes us different from the commercial sector provision. It is worth bearing that in mind as you look at this aspect of the Bill.

Nicholas Winterton: We thank Mr. Myners for that additional comment. In order to help both our witnesses and members of the Committee, I am obliged to conclude the questioning around mid-day—in other words to allow the question that has been put to be dealt with before the Government Whip adjourns the Committee.
I have already noted that Paul Rowen, Jim Cunningham, David Borrow, Mike O’Brien, Andrew Selous and Stewart Jackson still have questions to put. I call Paul Rowen.

Q 15

Paul Rowen: Thank you, Sir Nicholas. What assessment has been made about the adequacy of generic financial advice in enabling people in perhaps very complex financial circumstances to opt out of the pension scheme?

Tim Jones:   The first thing to say is that the trust-based, personal account scheme will work extremely hard to provide very good information to prospective members as they determine whether or not to stay in, having been automatically enrolled. It will not be for the trust-based scheme to deal with that issue as it applies to workers looking at the same topic—“Do I stay in?”—against the range of other workplace schemes that will be around. This issue is not just about personal accounts: it goes right across the issue of the provision of workplace pensions. We have a duty to provide excellent information in support of that decision for people looking prospectively at personal accounts. It may well be that we would encourage people to look beyond that and to make it clear to them that other areas are available for advice, but the focus of personal accounts will be relatively narrow, and I think properly so, to help people in that context to determine whether they should opt out or stay in.

Q 16

Paul Rowen: Nevertheless there are people on housing benefit or at a certain age—approaching retirement age—and I know that the Thoresen review is looking at generic financial advice. Have you made any assessment of what that generic advice needs to provide? Otherwise, there is a danger people are going to say, “This is too complex. I am just going to opt out.”

Paul Myners:   I do not think, Mr. Rowen, that the advice we would hope to be provided under the heading of generic advice is unique or specific to personal accounts. That is to say, the issues around auto-enrolment and those captured by the description of “pay to save” already exist. There are already arrangements in place for auto-enrolment into occupational schemes, so the questions that arise under “pay to save” are not ones that are consequent upon the introduction of personal accounts. They are a feature of existing pension provision. Therefore, I believe that the questions that the recipients of advice need to answer are not driven by personal accounts alone, and I do not think that our views about the expectation of provision of generic advice will differ from the representations that will be made to you by the Association of British Insurers or others who have an active interest in this area.

Q 17

David Borrow: You have already made it clear that this is very much work in progress, and you argued earlier the benefits of keeping it simple. To what extent have you been able to look at lessons from overseas, or are planning to do so in the future? I would raise specifically the KiwiSaver scheme in New Zealand.

Tim Jones:   I am glad you asked that question. We already have four consultants in the team who have direct KiwiSaver experience, so we are learning from their previous lives. We have very recently agreed a secondment from the United States thrift savings plan and someone will come and be with us for nine months. This afternoon, I am meeting a Senator from Australia, and we will talk about “Supers”. This morning I was reading a review of a meeting held with the Swedish PPM—the Premiepensionsmyndigheten initiative. We are casting the net reasonably wide for a set of precedents. Interestingly, none of them are exactly the same as what we are doing here, but there are overlaps and different learnings. We are very cognisant of the fact that we need to look around the world and go and talk to people to learn, but also, if we can—as we have now with KiwiSaver and with the thrift savings plan—directly to bring people into the team so that they can add their perspective.

Q 18

David Borrow: To what extent is the involvement with systems overseas of benefit in terms of designing the internal system, but also in terms of giving Ministers advice about the complexity and simplicity argument? Ministers may wish to have complexity to deal with fairness issues that have been raised. Do you consider that lessons could be learned from overseas experience that might assist you in your advice to Ministers in that area?

Paul Myners:   Each geographical jurisdiction will have different requirements—a function of their own national law, customs expectations, the interface of pensions with benefits, and other forms of legislation. However, there are central and common features, and we are seeking to learn from the experience of others—both in terms of approach to policy and implementation—as indeed others are seeking to learn from our experience. In the world of pensions, what is happening in the UK with personal accounts is a matter of major interest, because we are establishing one of the largest and most complex pension arrangements known, or currently planned to be operated, in the world. So there is a lot of interaction; a lot of people want to come to speak to us. The good news therefore is that I do not have to send Mr. Jones to New Zealand, Sweden or Australia to learn those things—those people are coming to see us.

Q 19

Jim Cunningham: Following on from that question, and looking at the international dimension, will you be looking at charge structures?

Paul Myners:   We will, and in fact we will be issuing a consultation document in the next fortnight on the approach to charging, in which we will set out a range of options and seeking views.

Q 20

Jim Cunningham: To follow on from that, have you got any ideas of your own for keeping the charges low and simple?

Paul Myners:   To be highly efficient in delivering a simply, straightforward product, we will follow the same basic principles that have characterised much of the work that Marks & Spencer does.

Q 21

Nigel Waterson: Moving on to the issue that has become known as “levelling down”—you will have seen the most pessimistic of the projections made by the Pensions Policy Institute in its recent work for the Nuffield Foundation—can you take a few minutes to see how you define your relationship, as the new kids on the block, with existing pension schemes of reasonable quality?

Tim Jones:   The fundamental thing is that we want to be part of a change to the outlook that people in employment have in the UK that moves from “Workplace pensions are something that some people have” to “Workplace pensions are something that everybody has”. They become the norm; they become usual. That is the key transformation that we wish to be a part of.
There are a set of reasons—in a sense well rehearsed—as to why the target market that personal accounts are focused at has been difficult for the private sector to address. Paul and I would both see that not as a market failure—the market correctly recognises that it is a very difficult sector to address because of the very large number of small employers and the costs of approaching it and so on. It is our job to address that target market. Our aim is to work very collaboratively—we are talking directly to a number of the leading players in the private sector, and people like the National Association of Pension Funds and Association of British Insurers and others who represent them—to build a positive, constructive working relationship. That is what is happening so far.
We want to get to a place where there is more, in real terms, private sector provision, balanced by a thriving and successful personal accounts scheme. That is the goal and we are therefore focused on meeting that. I expect that the “tonality” and “salience”—as marketing people would call them—of personal accounts as we get them right for our target market will make the scheme credible, valued and trusted. These are all attributes a pension savings scheme has to have. But they will make it distinctive and will leave, I hope, plenty of space for the private sector to complement that. The upper earnings limit really does focus the mind on a significant opportunity above the personal accounts—for higher-paid workers for example.

Q 22

Nigel Waterson: Thank you. Paul, do you want to add anything to that?

Paul Myners:   Only that levelling down has been a feature of the pensions sector for some time, given the closure of defined-benefit schemes and the move to defined-contribution schemes with lower levels of contribution. It is very encouraging that the DWP’s own research has suggested that employers do not intend to reduce contributions. Indeed, a significant percentage intends to contribute more than the statutory minimum. If personal accounts achieve their goal, we will awaken interest and awareness in pensions so that they become something that the employee seeks in an employment offer. About 7 million to 9 million people currently working in the private sector have no occupational pension arrangement in place. We want to introduce a climate where the employee expects pension provision—and, indeed, becomes familiar with making judgments about and comparing pension provision—so that it becomes something that is to some extent demand driven. That is one of our clear goals in terms of the effectiveness of communication.

Q 23

Mike O'Brien: You both rightly said that simplicity was the key to dealing with issues such as charges and to ensuring that a scheme could deliver for such a large number of people at a reasonable cost. Some people, however, will want an element of choice: they might want sharia-compliant investments, environmentally-compliant investments and so on. To what extent do you intend to offer some degree of choice, bearing in mind that each choice adds cost?

Paul Myners:   We spent some time with the Work and Pensions Committee on this issue and on striking the right balance between offering sufficient choice and so much choice that it confuses. All the evidence suggests that a high percentage of employees will opt for the default fund. Private sector experience here and the experience of similar arrangements elsewhere—in Australia, Sweden and Denmark—is that the default option proves to be the one that most people choose. Therefore, we will have to do a great deal of work around the design and articulation of the features of the default option. Around that, we will create a range of funds that gives sufficient, but not excessive, choice. Then, through the process of consultation with the member panels and the employer panels, we will test prospective new products. To some extent, I think it is refreshing that the product range is one of the things that will work to sustain interest in, and awareness of, the work of personal accounts. However, we will always do that against the test that it should be self-financing, and that we should not get cross-subsidisation from one customer to another as far as product cost alone is concerned, as opposed to the total cost of the scheme.

Q 24

Mike O'Brien: You said that you would have to look at consulting on some of these investments. How do you propose to go about consulting and reporting back publicly on your investment strategy, not only in terms of the default scheme, but in terms of the other schemes that will give some element of choice?

Tim Jones:   We are planning a formal consultation on investment strategy, and that will be the method. People will have an opportunity to look at a document that sets out our thoughts on investment strategy and to provide their views on that. I echo what Paul said. That will cover our ideas about the construction of the default scheme—internal estimates are that up to 80 per cent. of the money could end up there—but we will also be setting out our thoughts on other funds.
To set expectations, our conversations so far are about maybe getting funds into double figures—six, 10 or 15—but not 50, 100 or 150. Again, the shape is focused on the target market of people who are largely new to pension provision. Yes, there are social and ethical funds. There might be a level of interest in those, and then there are those for different religious communities—sharia is a good example. There is a range of things to be consulted on, and we will do so formally.

Paul Myners:   I would expect the performance of our funds to be a matter of national interest.

Mike O'Brien: That is likely to be an understatement.

Paul Myners:   We will report to Members and to the public on how the funds have performed against their benchmarks. We will specify the benchmarks clearly because we have to be clear that in a number of these funds there will be risk, as there is with any DC arrangement. Therefore, we have to be very clear in the way that we explain to prospective investors that the value of investments can fall as well as rise in the short term, but experience would suggest that over the long term they may be appropriate investment for consideration. We will set very high standards here. We would also work with the Financial Services Authority to make sure that we draw on its input.

Nicholas Winterton: I am going to call John Greenway very briefly because he has not come in yet. I hope that he will be brief because we have something like nine minutes before we need to adjourn, and at least three other Members have caught my eye.

Q 25

John Greenway: I was happy to wait until the end, but you have called me and this touches on the subject. The moment you introduce a choice, we are back to the vexed old question of advice. Following on from what Paul Rowen said, we all have high expectations of getting some clarity on the subject from the Thoresen review. Until we have that, it is impossible to make judgments about what is going to happen. I suspect that, in collaboration with the retail distribution review that the FSA is undertaking, the whole area of advice may be recast.
Would you accept that if people have a choice of funds, they are going to have to make decisions? If they make the wrong decisions—choosing the wrong fund for them at their age and stage in life, for example—they might have a disappointed realisation, and the whole question is likely to arise about who is then responsible for them making the wrong choice. That will be for not just one person, but a great many.

Paul Myners:   Mr. Greenway, your scholarship and interest in this area is well known. However, the issues that arise with personal accounts are no different from those that arise with other retail investment products. Parliament and the FSA have clearly determined the difference between products sold under advice and those sold under information. Personal accounts will be sold under information. That is equivalent, in FSA terminology, to execution only, rather than advice. But, the Thoresen work—and, indeed, that of the industry—in continuing to promote awareness will undoubtedly help people better understand the information that they are being provided with.

Q 26

Andrew Selous: Two brief questions. Would it help the launch of a successful personal accounts system if those people who, through no fault of their own, had been auto-enrolled and then got no benefit in retirement could have some form of restitution? Do not define what that would be—perhaps we all need to go away and think about that. Would that help your job in selling this to the mass market, which we would want to do for personal accounts to be a success? My second question concerns some employers in really cut-throat industries where margins are low who might offer financial inducements to their employees not to join to save on their contributions. There would then not be a level playing field for employers. Do you think that there should be some stick to do something about those employers?

Paul Myners:   I invite Tim Jones to answer the first question. I will take the second.

Tim Jones:   The point on restitution is a broad one that covers the whole landscape of pension provision. It is therefore a matter of policy for the Department and not for us in the Personal Accounts Delivery Authority. We are just one player in a landscape of players. The issue already exists with people being automatically enrolled into workplace pensions. As a stakeholder we might have an input into the debate, but it is a debate across society and therefore properly taken forward by the Department.

Paul Myners:   Can you remind me of the second question?

Andrew Selous: It was about employers offering financial inducements to their employees not to go into the scheme to get a competitive advantage.

Paul Myners:   This is a legitimate area for parliamentary concern and ministerial guidance. My experience of chairing the Low Pay Commission is that employers are particularly concerned about the competitor around the corner who they think is cheating. We must make every effort to ensure that that does not occur, otherwise we are failing in our obligations to employers in a competitive market and also letting down the employee.

Q 27

Nick Ainger: Coming back to the last question from Nigel Waterson about levelling down, 75 per cent. of employers with an occupational pension scheme are contributing more than 3 per cent. What evidence do you have that, by introducing the new scheme with a 3 per cent. contribution from employers, you are not going to see employers either reducing their contribution in existing occupational pension schemes, or even closing them down and moving their staff into the new scheme that you are running? Is there any evidence internationally that that has happened or has not happened?

Paul Myners:   The most relevant evidence is the research carried out and published by the DWP, which suggests that employers will not be reducing their contributions. Those who have already shown the foresight to put in place pension arrangements have acknowledged the value to their company of having employees with good pension provision. They are working harder to explain to their employees the value of that pension provision. There is now more awareness of pensions issues and people recognise the provision as a valuable part of the employment offer.
There is no reason to believe that those who have concluded that they should offer a pension arrangement with a generous employer contribution should in any way be deflected from that conclusion by the creation of a new vehicle for a totally different market—those who are currently not being offered any pension provision at all.

Tim Jones:   May I briefly add that I think the ban on transfers in is also going to be a significant factor in people not closing down existing provisions and moving across because you will not be able to take the accrued pot from the existing scheme and bring it into personal accounts?

Q 28

Stewart Jackson: Clause 61 of the Bill gives the organisation the authority to borrow money. In the past, the Government have had some issues regarding semi-autonomous agencies such as the Assets Recovery Agency. This is a potential concern. May I ask Mr. Myners who he would borrow money from? What collateral would he have, and for what purposes might the authority borrow money?

Paul Myners:   The envisaged capacity to borrow for personal accounts is no different from that available to occupational pension arrangements. It is already embodied in law that pension schemes can borrow. The borrowing to establish the scheme—the borrowing for development—is one of the options that should be available to us. If we were to consider, after careful evaluation of all the financial options, that borrowing to finance capital cost was an appropriate route to adopt, the borrowing would be secured against a future income and by personal accounts.

Nicholas Winterton: We look as if we have come to the end of our questions. May I pose a question to our two witnesses, because taking evidence at the beginning of a Public Bill Committee is an experimental procedure? Do you think that coming to give evidence to members of a Public Bill Committee is helpful in the scrutiny and understanding of legislation? Mr. Myners, perhaps it would be appropriate for you to deal with that question.

Paul Myners:   Sir Nicholas, not having had experience of the previous approach, I can only say that we have welcomed the opportunity to meet Members of Parliament. We benefit from the insights that we secure and we have gone out of our way to make sure that we have opened up direct dialogue with representatives from the official Opposition and the Liberal Democrats, and specialists in the pensions area. The scrutiny that you are able to develop as a consequence of engagement with those who provide evidence will hopefully be helpful. Ultimately, it is for you, as the recipients of the evidence, to determine whether you have been enlightened. We have appreciated the opportunity of meeting you and feel that we have helped to further the case for personal accounts a little as a consequence. Thank you very much.

Nicholas Winterton: Mr. Myners, I have to say from the Chair that I am totally and completely 100 per cent. impartial in these matters, but I just felt that, because this is an experiment and still in its early days, I would ask that question, which I hope has been appreciated by Members on both sides of the Committee.
On behalf of the Committee, may I thank you, Mr. Myners and Mr. Jones, for the valuable and helpful evidence that you have given the Public Bill Committee this morning?
Further consideration adjourned.—[Mr. David.]

Adjourned accordingly at two minutes past Midday till this day at Four o’clock.